Matahari Putra Prima (MPPA IJ, NEUTRAL, TP IDR2,700) Results Review: A Good Start

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Matahari Putra Prima (MPPA IJ, NEUTRAL, TP IDR2,700) Results Review: A Good Start

Matahari’s 1Q14 performance was in line with expectations, with revenue/core profit of IDR3.1trn/IDR 69.1bn forming 20.4%/20.9% of our and 16.9%/18.1% of consensus FY14 forecasts. We also saw strong sales on 10% SSSG, ie above our 5% full-year estimate. We lift TP to IDR2,700 (from IDR2,450) as we adjust our risk free rate on our DCF valuation while downgrading our call to NEUTRAL.

¨       Smooth launch. Matahari Putra Prima (Matahari) managed to kick-off the year with 18.4% y-o-y rise in 1Q14 revenue to IDR3.1trn and a 224% y-o-y surge in core profit to IDR 69.1bn on the back of 10% same-store sales growth (SSSG). Looking at it on a q-o-q basis, margins remained at tolerable levels during this period, with 16.9% gross margin (4Q13: 16.3%), 2.6% EBIT margin (4Q13: 4.7%) and 2.2% core net profit margin (4Q13: 3.3%). We believe that, going forward, the company should continue to improve as it expands into areas with better margins outside Java combined with better operational efficiencies at its stores.

¨       Store expansion plan remains intact. Despite no stores opening in 1Q13, management guided that Matahari should open its first store this year in Manado by May, followed by a few more in June and the remainder slated for 2H14. Matahari’s total store expansion plan remains unchanged, with 20 Hypermarts, 3-5 Foodmarts and over 20 Boston stores to be opened. Out of the 20 new Hypermart stores, 50-60% should be opened outside Java, where we believe this can provide better margins for the company.

¨       What is the challenge? Considering Matahari’s expansion plan, construction progress and space availability are crucial factors. Construction delays should push back the expansion timeline and negatively impact its performance. Lower SSSG is also another side-effect of this aggressive expansion, although, as the company’s stores mature and reach optimum sales levels, we see SSSG normalising.

¨       Downgrade to NEUTRAL with IDR2,700 TP (from IDR2,450). We adjust our risk free rate to 8% from 9% in response to changes in market conditions. This has resulted in a new IDR2,700 TP. We downgrade this stock to NEUTRAL.

Best regards,

RHB OSK Indonesia Research Institute

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